Scaling up financing for environmental projects

Next week the world will be following the developments around the COP28 summit in Dubai, where the global community will discuss proposals to cut emissions and improve the environmental outlook for the world economy. Developing economies and in particular the BRICS hold the key to the success of global de-carbonization. With BRICS expansion set to include some of the largest oil producers such as Saudi Arabia and the United Arab Emirates, the importance of an expanded BRICS+ for launching and sustaining environmental initiatives becomes all the more important. But while some of the BRICS economies such as Brazil are coming up with important initiatives to raise financing for environmental projects, there is a lack of common effort on the “green trajectory” coming from the BRICS as a group as well as from the broader Global South. The success of the global community in dealing with the challenges of climate change will be in finding scalable solutions to green financing as well as creating new global platforms that use the entire fire-power of the global financial reserves.  

One of the latest initiatives to raise financing for environmental projects in the run-up to the COP28 global summit is Brazil’s proposal to create a global financing framework to support tropical forests. According to the Financial Times, “a fund would be created to compensate residents and landowners who help preserve forests such as the Amazon”, with hopes expressed by Brazilian authorities of the initiative being supported by up to 80 countries[1]. The size of the fund initially may reach 100 mn dollars, but is expected to grow significantly in coordination with international institutions such as the World Bank.  

This latter reference to the role of the World Bank in scaling up the size of the environmental fund proposed by Brazil is of significant importance. Earlier this year the World Bank presided over the creation of a platform for regional development banks that singled out the financing of green projects as one of its key priorities[2]. Among some of the goals in the creation of the platform for regional development banks together with the World Bank was boosting collective efforts on climate and strengthening co-financing of priority projects. Through the operation of such a platform, the World Bank may notably expand the available resources for the support of tropical forests and other environmental projects.

But in order to make full use of the resources available in the global economy there may be an additional layer of financial institutions that could be involved in supporting environmental projects. What could complement this World bank-led platform of regional development institutions may be a framework that brings together the largest Sovereign Wealth Funds (SWFs). The formation of a global platform for SWFs has already been advocated in one of the T20 Policy Briefs – the proposal called for bringing together the resources of the largest global SWFs “allowing for greater coordination among these funds and for synergy effects with other cooperation tracks among the G20 countries”[3].

Importantly, there is already significant momentum in the shift of the largest SWFs into sustainable financing. According to a recent ICEX-Invest in Spain and IE University 2023 Sovereign Funds report, “the current focus on sustainability has led sovereign funds to shift their investments from conventional oil-related industries to green technologies. They have also diversified their investments in this direction, allocating funds to electric vehicle companies, sustainability businesses and the agri-tech industry. All new sovereign fund investments in the energy industry between January 2022 and March 2023 were linked to renewables, with no deals in oil and gas for the first time since … 2012”[4].

Along with a greater focus of the SWFs on financing green projects, their overall fire-power has been rising notably in recent periods – the resources of the largest SWFs sovereign funds have seen an 11% increase in assets under management (AUM) to 11.6 trillion dollars in 2022, from 10.39 trillion dollars in 2021[5]. A 1% re-allocation of SWF assets towards sustainable investments would represent a more than 100 bn dollar increase in the financing of de-carbonization and green transition. Such global initiatives even if moderate in terms of the relative changes in asset allocation may impart a far greater effect on efforts to deal with climate change compared to ad hoc initiatives launched by individual countries. These are the benefits of scale in global initiatives addressing global issues such as climate change.

In this vein, a global platform for SWFs with coordination from the G20 as well as the IMF could operate in coordination with the global platforms that bring together regional development institutions (RDIs) and the World Bank. This coordination of platforms may involve the co-financing of priority sustainability projects and building common pipelines of such projects across regions and the global economy. It may also involve the support accorded by the SWFs to the issuance of green instruments by regional development institutions – as the regional development banks issue green bonds, part of the placement could be taken up by the SWF platform – the synergy in the operation of these global platforms allows for the stage of sustainable project development and selection by RDIs to be followed by financing and asset allocation undertaken by SWFs.

In the end, Brazil’s initiative is highly commendable and needs to be supported at the COP28 summit by partners from the Global South and the developed world. But for these initiatives to stand a chance of having a palpable impact, there needs to be framework for scaling such initiatives to a wider array of partners from the global community across the various categories of financial instruments and institutions. Bringing on board the SWFs and exploiting their synergies with other platforms and institutions such as regional development banks may provide the much needed momentum in addressing the challenges of climate change.  


[1] Bryan Harris. Brazil to propose forest protection fund. Financial Times, 25 November/26 November, 2023, p. 4

[2] https://brics-plus-analytics.org/imf-world-bank-annual-meetings-the-emergence-of-a-platform-for-mdbs/

[3] Aldamer, Shafi, Curran Flynn and Yaroslav Lissovolik (2020), “International Political Economy & Future of Multilateralism: A Platform for Cooperation for G20 Sovereign Wealth Funds”, in T20 Saudi Arabia Policy Briefs, September, https://www.g20-insights.org/?p=15876

[4] https://www.investinspain.org/content/icex-invest/en/noticias-main/2023/np-swf-23.html

[5] Op. cit.

Image by Geralt via Pixabay


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